Current Trends in Equity Compensation

Across my desk this week came the latest report from Equilar, an executive compensation data firm, on equity trends. In their 2013 Equity Trends Report, key findings included upticks in the use of restricted stock and performance shares, and a slight downturn in the use of stock options. I'll highlight a few of the observations in today's blog.

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The Equilar report analyzed the equity practices in S&P 1500 companies that are publicly traded and have at least 6 years of disclosures (resulting in a pool of 1,327 companies). Some of the notable findings include:

Restricted stock awards are at an all-time high, with 92.8% of the companies issuing restricted stock in 2012 (compared to about 80% back in 2007). I couldn't find any breakdown in the report between the use of RSAs vs. RSUs - so for purposes of this analysis the term "restricted stock" appears to encompass both types.

Stock options continue to decline in use. Equilar reports that over the past 6 reporting years (2007-2012), the number of companies reporting that they grant stock options has decreased to 65.2% from 78.5%. The size of the median stock option grant has also decreased for three straight years in a row, continuing a trend we've seen over the last decade (only varied by a blip in 2008 and 2009 when companies increased grants to compensate for market conditions). Although there has been a continued downward trend in this area, I personally believe that stock options will continue be mainstream - I don't see them just riding off into the sunset - at least not in the near term.

Performance shares keep rising in popularity. This has been an ongoing trend, so no big surprise here. The report indicates that 61.8% of the S&P 1500 CEOs received performance grants in 2012, compared to 55.8% in 2011. I expect we'll continue to see upward mobility in those numbers, year over year.

The Equilar report does cover additional topics of interest, such as trends in dilution and volatility rates. You can access the full report on Equilar's website. This report affirms some of the trends we've observed, and we expect these trends will continue to gain upward (or downward, in the case of some of the stock option trends) momentum in the coming months and years.